Investors are once again trying to discern if they’re immersed in a bull market or if the economy is going to weaken and equity markets will fall accordingly. The chart below brings some historical perspective about what has happened to the S&P500 after the yield curve reaches the maximum point of inversion and then revert to normal slope. As you can see, there have been some instances where the index has had an excellent performance post peak inversion (1980, 1989, 2006) only to succumb to reality once recession hits the economy. It can take from a few months to almost 2 years for the market to adjust to the new reality, but in all instances presented the market has fallen. Corporate earnings will start coming out over the next few weeks, and it will give us an idea of where we stand in terms of the cycle.
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Source: Jurrien Timmer
